The design of TOU tariffs for residential customers - AMEU design of TOU... · The design of TOU...

The design of TOU tariffs for The design of TOU tariffs for residential customersresidential customers

ContentsContents

Overview of tariff typesOverview of tariff typesInternational experienceInternational experienceEskom experienceEskom experienceThe design of a TOU tariffThe design of a TOU tariffA discussion on inclining block rate tariffsA discussion on inclining block rate tariffsKey challengesKey challengesConclusionConclusion

Types of tariff structures Types of tariff structures usually used for residentialusually used for residential

Increases the cost for for high usage customers –without necessarily reducing the cost for the utility. Lower income customers usually have lower usage -they may benefit. These tariffs do not target peak reductions, and therefore cross subsidisation of those who use intensively during peaks may occur.

A lower rate for a first block of energy consumption and a higher rate for consumption above the first block

Inclining block rates

Larger customers pay a larger share of costs. Customers who consume only small on-peak quantities cross subsidise those who consume larger volumes in peak times - causes higher peak period demand (tariff is bases on the average)

Where the total charge is a variable amount

Flat tariff structures

Low income customers (who are on average smaller consumers) find these charges more onerous.

Where a portion of the bill is not based on consumption but is fixed on a monthly basis

Fixed chargesFeaturesFeaturesDescriptionDescriptionChargeCharge

Types of tariff structures Types of tariff structures usually used for residentialusually used for residential

FeaturesFeaturesDescriptionDescriptionChargeCharge

Greatest cost reflectivity yet again potentially penalises those without discretionary load. Very complex and difficult for low usage customers to manage. Reduces cross subsidisation of peak users. Effective with enabling technologies

TOU rates, with additional signals for critical periods - or real time pricing signals

Dynamic pricing

May result in higher cost to those unable to shift peak consumption ie low income customers with little discretionary load. Customers able to shift/reduce load will save. Reduces cross-subsidies to peak users it reflects costs more accurately. Effective with enabling technologies

Where rates a differentiated on different periods in a day. There may also be in addition to daily differentiation also seasonal differentiation

Time of Use pricing

Will increase the cost of use for low usage customers. Causes cross subsidy from low to high users and where intensive peak usage occurs.

A higher rate for a first block of energy consumption and a lower rate for consumption above the first block

Declining block tariffs

International experiences with International experiences with tariffs to support DSMtariffs to support DSM

DSM and pricingDSM and pricing

One way to implement selfOne way to implement self--sustaining sustaining tariffs is to allow prices to vary by timetariffs is to allow prices to vary by time--ofof--day, since it does cost a lot more to day, since it does cost a lot more to serve peak loads than base loads. serve peak loads than base loads. DSM provides a way for optimising DSM provides a way for optimising infrastructure investments by ensuring infrastructure investments by ensuring that growth is efficientthat growth is efficient

Source: Source: Primer on Demand-Side Management, prepared for the World Bank, 2005 by Charles River Associates

DSM and pricingDSM and pricing

Rate design itself can be used as an effective Rate design itself can be used as an effective implementation strategy. implementation strategy. To be done along side an educational To be done along side an educational campaign to inform customers campaign to inform customers –– Efficiency (appropriate use of scare resources)Efficiency (appropriate use of scare resources)–– Conservation (global warming)Conservation (global warming)–– Saving for the customer (direct benefit)Saving for the customer (direct benefit)

More effective when technical assistance More effective when technical assistance providedprovided–– Assists customers in benefiting from the Assists customers in benefiting from the

incentives that are implicit in the rate design.incentives that are implicit in the rate design.Source: Source: Primer on Demand-Side Management, prepared for the World Bank, 2005 by Charles River Associates

What about the customer?What about the customer?

Customers are suffering from information overload. Customers are suffering from information overload. They have become hardened and overwhelmed They have become hardened and overwhelmed with too much informationwith too much informationThey just do not want to care anymore about what They just do not want to care anymore about what they should do.they should do.–– They need help!They need help!

One cannot expect customers to get One cannot expect customers to get ““smarter.smarter.””Utilities have to position themselves as being the Utilities have to position themselves as being the customercustomer’’s partner in helping balance electricity s partner in helping balance electricity demand with electricitydemand with electricity


TOU AROUND THE WORLDTOU AROUND THE WORLD

TOU pricing is commonplace in TOU pricing is commonplace in developed economies at all stages developed economies at all stages of market restructuring.of market restructuring.These rates are mandatory in These rates are mandatory in several U.S. states but the size several U.S. states but the size threshold varies by state.threshold varies by state.Residential TOU rates are offered Residential TOU rates are offered on a voluntary opton a voluntary opt--in basis by in basis by utilities in all types of climates utilities in all types of climates within the U.S.within the U.S.


Gulf Power Gulf Power -- Good Cents Good Cents Select Select program in Floridaprogram in Florida..

Uses dynamic pricing to obtain additional benefits beyond Uses dynamic pricing to obtain additional benefits beyond traditional TOU pricing. traditional TOU pricing. Is voluntaryIs voluntaryA threeA three--part TOU rate for 99 percent of all hours in the year, where part TOU rate for 99 percent of all hours in the year, where the peak period price of $0.093/kWh is roughly 60 percent higherthe peak period price of $0.093/kWh is roughly 60 percent higherthan the standard (flat) tariff price and approximately twice ththan the standard (flat) tariff price and approximately twice the e intermediate (shoulder) price. intermediate (shoulder) price. For the remaining 1 percent of the hours, in a critical period pFor the remaining 1 percent of the hours, in a critical period price 3 rice 3 X peak rate charged X peak rate charged -- called during the day when critical conditions called during the day when critical conditions encountered.encountered.Customers provided with a programmable/controllable thermostat Customers provided with a programmable/controllable thermostat --automatically adjusts heating and cooling loads with up to threeautomatically adjusts heating and cooling loads with up to threeadditional control points.additional control points.


Gulf Power Gulf Power -- Good Cents Good Cents Select Select program in Floridaprogram in Florida..

The devices can be programmed to modify usage when prices The devices can be programmed to modify usage when prices exceed certain levelexceed certain levelPeakPeak--period reductions over a twoperiod reductions over a two--year period equalled year period equalled roughly 22 percent compared with a control group, while roughly 22 percent compared with a control group, while reductions during criticalreductions during critical--peak periods equalled almost 42 peak periods equalled almost 42 percent percent Diversified coincident peak demand reductions exceeded Diversified coincident peak demand reductions exceeded more than 2 kW per customer more than 2 kW per customer Participating customers pay roughly $5/month to help offset Participating customers pay roughly $5/month to help offset the additional cost of the communication and control the additional cost of the communication and control equipment. equipment. In a survey, the program received a 96 percent satisfaction In a survey, the program received a 96 percent satisfaction ratingrating

EDFEDF

EDF operates the most successful example of TOU pricing. Currently, a third of its population of 30 million customers on TOU pricing. First introduced for residential customers in 1965 on a voluntary basisApplied in the country to large industrial customers as the Green Tariff in 1956


EDFEDF

In 1993, EDF introduced a new rate design, tempo to 120,000 residential customers 2 daily pricing periods and 3 types of daysThe year is divided into 3 types of days (after the colours of the French flag) – The blue days most numerous (300) and least expensive– the white days are the next most numerous (43) and mid-range in

price; – the red days are the least numerous (22) and the most

expensive. The ratio of prices between the most expensive time period (red peak hours) and the least expensive time period (blue off-peak hours) is about 15 to 1, reflecting the corresponding ratioin marginal costs.


EDFEDF’’s tempo tariffs tempo tariff

Puget SoundPuget Sound

PSE serves approximately 1 million customers in Seattle. In May of 2001, as a response to the power crisis in the Western states, PSE designed and implemented a time-of-use (TOU) rate for its residential and small commercial customers.4 pricing periods. – The morning and evening periods were the most expensive

periods, followed by the mid-day period and the economy period.– PSE’s TOU rate featured very modest price differentials between

the peak and off-peak periods, reflecting the hydro-based system in the Northwest.

The peak price 15 percent higher than the average price customers had faced prior to being moved to the TOU rate and the off-peak price was about 15 percent lower. To keep the rate simple, there was no seasonal variation in prices.


…….Puget sound continued.Puget sound continued

A monthly fee of $1 a month (80 percent of the estimated variable cost of providing TOU meter reading) levied Each quarter customers notified of their savings (or losses) In Oct 2002 a report showed that they were paying an extra eighty cents per month the TOU pilot.Media coverage very negative Customers felt cheated, even though the loss on average r was 80 cents/ month.PSE left with no alternative but to pull the plug on a program that had become the most visible national symbol of a utility's commitment to time varying pricing, and agreed to refund the increased amounts to participating customers.


CaliforniaCalifornia

The State’s Energy Action Plan in 2001 identified several key action items with regard to Demand ResponseIncluded proposals– to adopt advanced metering, – educate Californians about the time sensitivity of energy use – and how they can participate in demand response programs.

Starting in 2003, the investor owned electric utilities ordered to develop new demand response programs and tariffs for customers as well as expand existing emergency triggered programsAt the same time, California adopted an aggressive long-term dynamic pricing goal for the utilities equal to 5% of the projected system peak demand in 2007.

CaliforniaCaliforniaThe state of California conducted a Statewide Pricing Pilot - test customer response to a variety of pricing options, including TOU rates and CPP rates. In California, standard residential tariffs involve an inclining block rate design

– Average price of about 13 cents per kWh. The TOU and CPP rates:

– Higher during the five-hour peak period from 2 pm to 7 pm on weekdays– Lower price during the off-peak period, which applies during all other hours.

On average, customers on TOU rates are given a discount of 23 percent during the off-peak hours and are charged a price of around 10 cents.Charged:

– 22 cents during the peak hours, which is 69 percent higher than the standard rate.– On selected days for customers on CPP rates charged on average 64 cents during

the peak hours on 12 summer days i.e. prices are nearly 5 times higher than the standard price.

– On the peak hours of other days and the off-peak hours of all days prices that are slightly lower than the prices faced by TOU customers during these periods.


CaliforniaCaliforniaIn a Report to the California Legislature in October 2003, potential adverse impacts of real-time, critical peak, and other dynamic pricing scenarios were noted:

– Dynamic pricing can more accurately charge customers for their cost of service than do existing fixed rates

As a result, customers subsidized under current rates are most likely to pay more under dynamic pricing. Particularly true for customers that have greater peak usage

– Customers will be exposed to paying the real cost of purchasing and delivering electricity to their homes.

– Truly “disadvantaged” low usage customers could be negatively impacted -could be provided with an explicit subsidy if the dynamic rates actually result in higher bills for them

Further options to ensure protection of low income customers include the following:

– Require that the costs of new meters be recovered through volumetric energy rates – not fixed charges

– Provide customers below a certain usage level with a credit or subsidy– Do not provide interval (smart) meters to low-usage customers.

(*Note that low income electric customers in California are provided a 20% rate discount under the CARE program)


Enabling technologies Enabling technologies installed (smart installed (smart thermostat and meter)thermostat and meter)The smart thermostat The smart thermostat plus tariff (which plus tariff (which included critical peak included critical peak pricing) showed pricing) showed greater load shift than greater load shift than smart thermostat alonesmart thermostat alone

Source: California Statewide Pricing Pilot (SPP) Overview and Results 2003-2004

California California –– customer acceptancecustomer acceptance

Customers don’t understand how electricity is measured.Customers don’t understand how electricity is priced.There is an uncertain and inaccurate link between how customers use energy, what they pay and what they get in service value.Bill accuracy – customer’s must trust their supplier. No other choice.Customers understood time-differentiated pricing (at least the on-peak / off-peak variety) more easily than they understood inclining block or declining block pricingSource: California Statewide Pricing Pilot (SPP) Overview and Results 2003-2004


California California -- customer responsecustomer response


In July 2006, California PUC approved PG&E’s proposal to replace all electric and gas meters with “smart meter”technology over five years at a price tag of $1.6 billion– Majority of saving motivated not on

demand response (only 10%)– Not mandatory for customers

USA (federal)USA (federal)

Have legislated Have legislated (PURPA)::– Each electric utility to offer each customer class and to individual

customers upon request a “time-based rate schedule.– The time-based schedule “shall enable the electric consumer to

manage energy use and cost through advanced metering and communications technology….”

Nationally, only 5% of customers are on some form of time-based rates or incentive-based rates that relate to peak usage periods (FERC report)– Barriers include that there is no clear policy concerning the

incentives to stimulate utility investment in advanced meters and new communication and data management systems and cost recovery mechanisms have not yet been resolved.

Lessons learnt internationallyLessons learnt internationally

Customers do shift loads in response to a TOU price signal, evenCustomers do shift loads in response to a TOU price signal, even if if the price signal is not significant, howeverthe price signal is not significant, however……. . Greater load shift occurs with enabling technologiesGreater load shift occurs with enabling technologiesNeed to get the rate design right!Need to get the rate design right!Important to manage customer expectations about savings. Important to manage customer expectations about savings. It is desirable to conduct a pilot program before large scale roIt is desirable to conduct a pilot program before large scale roll out. ll out. –– Before/after measurements on customersBefore/after measurements on customers–– Have a control groupHave a control group–– Test a few variations of the tariff Test a few variations of the tariff

Any program should make a majority of the customers better off, Any program should make a majority of the customers better off, or or it should not be offered.it should not be offered.


Why are enabling technologies so Why are enabling technologies so important?important?

In Eskom pilot and in other pilots around the In Eskom pilot and in other pilots around the world greater load shifting occurred using world greater load shifting occurred using technology (through smart metering) than technology (through smart metering) than just tariff options alonejust tariff options aloneGreater load shift occurs when the two are Greater load shift occurs when the two are combined.combined.Helps the customer and utility gain Helps the customer and utility gain automatic benefitautomatic benefit

EskomEskom’’s strategic pricing direction s strategic pricing direction

–– Economic efficiency and sustainabilityEconomic efficiency and sustainability: tariffs : tariffs will contain cost reflective signals that promote will contain cost reflective signals that promote economic efficiency and sustainability.economic efficiency and sustainability.

–– Revenue recoveryRevenue recovery: : tariff structures will not tariff structures will not expose Eskom to unacceptable revenue risk and expose Eskom to unacceptable revenue risk and provide the means for adequate revenue provide the means for adequate revenue recovery to ensure reliability of supplyrecovery to ensure reliability of supply ..

–– Fair and equitableFair and equitable: tariffs will be designed to be : tariffs will be designed to be as nonas non--discriminatory as possible by taking into discriminatory as possible by taking into account the needs of all customers on a fair and account the needs of all customers on a fair and equitable basis.equitable basis.

EskomEskom’’s experience s experience --HomeflexHomeflex

Eskom identified the need for a residential timeEskom identified the need for a residential time--ofof--use tariff as a use tariff as a DSM strategy to encourage peak load shifting and energy efficienDSM strategy to encourage peak load shifting and energy efficient t customer responses.customer responses.A tariff (Homeflex) was developed and various pilots were run A tariff (Homeflex) was developed and various pilots were run together with load management strategies i.e. customerstogether with load management strategies i.e. customers’’ geysers geysers were managed.were managed.AA potential of 84MW can be shifted out of peak, if the tariff is potential of 84MW can be shifted out of peak, if the tariff is applied applied to Eskomto Eskom’’s niche residential market of 120 000 suburban customers.s niche residential market of 120 000 suburban customers.Results and knowledge gained from the pilots were incorporated iResults and knowledge gained from the pilots were incorporated into nto the current design of the tariff.the current design of the tariff.Tariff is initially aimed at medium to high usage residential cuTariff is initially aimed at medium to high usage residential customers stomers in Eskom, customer consuming on average 500kWh/m and more in Eskom, customer consuming on average 500kWh/m and more (existing Homepower customers).(existing Homepower customers).The long term strategy is to implement the tariff to other markeThe long term strategy is to implement the tariff to other market t segments, including municipal customers.segments, including municipal customers.

Conclusions from pilot testingConclusions from pilot testing

Homeflex may be usefully practiced on consumers using Homeflex may be usefully practiced on consumers using more than 500kWh/month.more than 500kWh/month.Response to a 2 part or 3 part tariff was not distinguishable, Response to a 2 part or 3 part tariff was not distinguishable, but was distinguishable from the control groups.but was distinguishable from the control groups.–– Decided to go with 2 partDecided to go with 2 part

The tariff is the mechanism that keeps the load shedding The tariff is the mechanism that keeps the load shedding devices in place, operating normally and untampered.devices in place, operating normally and untampered.To make a load management strategy most successful, the To make a load management strategy most successful, the customer must see direct benefits.customer must see direct benefits.A timeA time--ofof--use tariff is an extremely effective strategy which use tariff is an extremely effective strategy which provides immediate incentives for customers to do load provides immediate incentives for customers to do load shifting, and reap the direct benefits.shifting, and reap the direct benefits.

Proposed tariffProposed tariff

Energy charge (per unit) Charges: Network charge (per day)

Service charge (per day)

High demand (June − Aug) Low demand (Sep − May)

Homeflex 1 R2,07 + VAT = R2,36


Peak 83.45c +VAT= 95.70c/kWh Peak 32.63c + VAT=

37.20c/kWh



R1,34 + VAT = R1,53/day

Off-peak 27.47c + VAT = 31.32c/kWh

Off-peak 22.00c + VAT = 25.09c/kWh

Main difference between Homeflex and Homepower (non TOU):• Peak energy rates for both seasons are higher than the Homepower energy rate of 29.45c/kWh.

• Off-peak rate is lower in both seasons than the Homepower energy rates, providing a higher incentive to do peak load shifting.

• Revenue neutral to the average residential profile.

Homeflex tariff customer conversion impact

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

84% 83% 82% 81% 80% 79% 78% 77% 76% 75% 74% 73% 71% 70% 67%

16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 26% 27% 29% 30% 33%

Off-peak to peak consumption %

% Im

pact

Energy charge tariff structure choiceEnergy charge tariff structure choice

Customer Risk

Util

ity R

isk

Flat rates Seasonal rates

Inclining block rates

Daily off -peak rates

TOU rates

Curtailable and Interruptible rates

CPP rates

RTP rates

Copied from an idea in the “Primer on Demand -Side Management -With an emphasis on price -responsive programs, World Bank

sim

ple

complex

Energy prices

Customer Risk

Util

ity R

isk

All costs recovered in the energy rate (TOU or flat)

All costs recovered in a fixed (annual) demand/customer charge

Copied from an idea in the “Primer on Demand -Side Management -With an emphasis on price -responsive programs, World Bank

Network prices

All costs recovered in a time based demand charge

All costs recovered in a TOU based energy charge (per feeder)

Costs recovered from a variable demand and a fixed annual demand/customer charge

All costs recovered in a demand charge

How to design a TOU tariffHow to design a TOU tariff

Various design optionsVarious design options–– Simplest a two part peak and off peakSimplest a two part peak and off peak

Further differentiation between high demand high Further differentiation between high demand high constrained period to low demand/low constrained constrained period to low demand/low constrained periods.periods.

–– Three part Three part –– peak, off peak, standard (shoulder)peak, off peak, standard (shoulder)–– Four partFour part–– Any of the above with a super peak or critical Any of the above with a super peak or critical

peak price (with day ahead warning)peak price (with day ahead warning)

How to design a TOU tariffHow to design a TOU tariff

Rate should be revenue neutralRate should be revenue neutral–– No load shift no savingNo load shift no saving

Designed around the average customer consumption and profileDesigned around the average customer consumption and profile–– Use the control group dataUse the control group data–– Need at least a yearNeed at least a year’’s datas data

Need to have an adequate differential between peak and off peak Need to have an adequate differential between peak and off peak rates and rates and seasonsseasons

–– Must incentivise customer to shift load/use lessMust incentivise customer to shift load/use less–– The price differential between peak and off peak usage is the prThe price differential between peak and off peak usage is the primary factor that imary factor that

determines the degree of customer demand response*determines the degree of customer demand response*Must include a signal for the size of the supplyMust include a signal for the size of the supply

–– Capacity based network chargesCapacity based network charges–– Can have a portion of network charges fixed and a portion variabCan have a portion of network charges fixed and a portion variable.le.

Must consider equity Must consider equity –– May not be appropriate for lower consumption supplies May not be appropriate for lower consumption supplies –– inability to shift loadinability to shift load–– Rather have simpler tariffs with targeted subsidies Rather have simpler tariffs with targeted subsidies –– drive conservation plus enabling drive conservation plus enabling

tools (geyser/kettle interlock, CFLs etc)tools (geyser/kettle interlock, CFLs etc)

*Source: Caves, Christensen and Herriges from the California TOU pilot

Network charges for TOU Network charges for TOU tariffstariffs

OptionsOptions–– Fixed (based on installed capacity)Fixed (based on installed capacity)–– R/kVA based (reliant on demand being measured which smart R/kVA based (reliant on demand being measured which smart

TOU meters can do)TOU meters can do)–– Single c/kWh based (does not provide a signal for installed Single c/kWh based (does not provide a signal for installed

capacity or TOU)capacity or TOU)–– Mix of the above two Mix of the above two –– portion fixed and a portion variableportion fixed and a portion variable

Ensures that there is signal for usage and for capacityEnsures that there is signal for usage and for capacityIf fixed charges too high, reduces the incentive for customers tIf fixed charges too high, reduces the incentive for customers to o reduce consumption as c/kWh charge is low.reduce consumption as c/kWh charge is low.

–– TOU c/kWh basedTOU c/kWh basedCould cause the distributor to lose revenue when usage is shifteCould cause the distributor to lose revenue when usage is shifted to d to offoff--peak as rates are lowerpeak as rates are lower

–– Differing on size of supply Differing on size of supply –– the larger the supply the higher the the larger the supply the higher the raterate

Other alternativesOther alternativesLets talk inclining block rates..Lets talk inclining block rates..

Often punted as an option to get residential customers to Often punted as an option to get residential customers to reduce electricity.reduce electricity.

Inclining block rate

Single energy rate

Fixed charge plus single energy rate

Breakeven

The motivation for..The motivation for..

Inclining block rates would provide an Inclining block rates would provide an economic incentive for customers to reduce economic incentive for customers to reduce their energy use.their energy use.The rich pay more which is rightThe rich pay more which is rightChanging the existing Changing the existing tariff tariff structures could structures could help motivate customers to reduce their help motivate customers to reduce their bills, help reduce demand growth and defer bills, help reduce demand growth and defer the need for new generation.the need for new generation.

What are the challenges with What are the challenges with inclining block rates?inclining block rates?

Not cost based Not cost based –– Inclining block rates are not costInclining block rates are not cost--reflective since the burden posed on the reflective since the burden posed on the

system by consumption is not only a function of the level of housystem by consumption is not only a function of the level of household usage sehold usage but also their patterns of usage.but also their patterns of usage.

–– Small and large customers who consume only small onSmall and large customers who consume only small on--peak quantities cross peak quantities cross subsidize those creating disproportionately higher peak period dsubsidize those creating disproportionately higher peak period demand emand

Medium to high usage residential customers consumption of electrMedium to high usage residential customers consumption of electricity icity relatively unresponsive to price (especially at the current low relatively unresponsive to price (especially at the current low levels)levels)

–– EskomEskom’’s pilots pilot–– EPRI studyEPRI study–– IPART documentIPART document

Some customer will reduce consumptionSome customer will reduce consumption–– May be modestMay be modest–– May not be in peak periods i.e. provides some incentive to reducMay not be in peak periods i.e. provides some incentive to reduce usage for e usage for

higher consumption customers, but does not provide this as a timhigher consumption customers, but does not provide this as a time based e based signalsignal

Some customers will increase consumptionSome customers will increase consumption–– Smaller usage customersSmaller usage customers

What are the challenges with What are the challenges with inclining block rates?inclining block rates?

There is considerable uncertainty over the likely reaction of There is considerable uncertainty over the likely reaction of customers to these tariffs customers to these tariffs —— will they respond at all, will the will they respond at all, will the response be as intended?response be as intended?But could result in large bill increases for users that cannot But could result in large bill increases for users that cannot change their usage levelchange their usage levelAssumes that rich consume more Assumes that rich consume more Implementation Implementation –– Needs an on line system for prepaymentNeeds an on line system for prepayment

IPART in their investigation of inclining block tariffs cited Filippini (1995) who found that peak consumption was more responsive to peak pricing than overall consumption was to an averaged price index.Provides no TOU and specifically peak usage signal– TOU tariffs provide a much better peak pricing signal

What are the challenges with What are the challenges with inclining block rates?inclining block rates?Have to reduce the current rate for certain Have to reduce the current rate for certain consumption and increase it for consumption above consumption and increase it for consumption above the kneethe knee--pointpoint–– What level is the kneeWhat level is the knee--point?point?–– Could also be difficult to defend Could also be difficult to defend –– why reflect marginal costs to why reflect marginal costs to

residential when all customers contribute to the peak?residential when all customers contribute to the peak?Is an option for lower consumption metered supplies Is an option for lower consumption metered supplies ––only if higher consumption are on TOU (already only if higher consumption are on TOU (already implemented with FBE)implemented with FBE)Evidence on price elasticity is that there is a limited response to changes in price for medium to high usage customers– People use what they need and pay the price.

Tariff design for inclining block ratesTariff design for inclining block ratesAn example:An example:

No of customers per consumption category

0

5000

10000

15000

20000

25000

30000

35000

120 310 550 600 820 1100 2500

No of customers perconsumption category

Tariff design for inclining block ratesTariff design for inclining block rates


0

100

200

300

400

500

600

700

800

900

1000

0 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300

kWh per month

35 c/kWh30c for first 500 + 89c for > 500

Assumptions800 kW h average per month

100000 No of customers80000000 kW h total

40 c/kW h tariffR 32 000 000 revenue per month

To get the same revenue


0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

120 310 550 600 820 1100 2500

No of customers perconsumption category

No of customers per consumption category



0

100

200

300

400

500

600

700

800

900

1000

0 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300

kW h p e r mo n t h

35 c/kWh30c for first 500 + 112c for > 500

Assumptions800 kW h average per month

100000 No of customers80000000 kW h total

40 c/kW h tariffR 32 000 000 revenue per month

California pricing experimentCalifornia pricing experiment

TOU pilots vs inclining block ratesTOU pilots vs inclining block rates–– On summer nonOn summer non--event days automatic demand response equipped homes used event days automatic demand response equipped homes used

34% less on34% less on--peak electricity (3.7 kWh per home) than comparable homes on peak electricity (3.7 kWh per home) than comparable homes on inclining block rate tariffsinclining block rate tariffs

Key challenges with residential Key challenges with residential TOU in SATOU in SA

Implementation Implementation –– Metering roll outMetering roll out–– Integration with existing systems etcIntegration with existing systems etc

Getting the tariff right Getting the tariff right –– no windfall benefit (customer or utility)no windfall benefit (customer or utility)–– correct signalscorrect signals

Mandatory or voluntary?Mandatory or voluntary?Include CPP ?Include CPP ?Customer educationCustomer educationRealising the benefit ie seeing the load shift with minimalRealising the benefit ie seeing the load shift with minimalimpact on lifestyle and customer satisfaction impact on lifestyle and customer satisfaction Support from Government and NERSASupport from Government and NERSA

In conclusionIn conclusion

Customer feedback (on usage) important to Customer feedback (on usage) important to incentivise continued load savingincentivise continued load savingGetting the tariff right plus enabling Getting the tariff right plus enabling technology the keytechnology the keyGreater appliance ownership increased the Greater appliance ownership increased the price elasticity of demandprice elasticity of demand##–– The price elasticity of demand greater with The price elasticity of demand greater with

dynamic pricing than traditional timedynamic pricing than traditional time--ofof--use use rates*rates*

Source: ESC, Installing Interval Meters, Position Paper, p.66 #Domestic electricity demand elasticities, Issues for the Victorian Energy Market , Maree Langmore and Gavin Duffy

Thank youThank you

Date post:	04-Jun-2018
Category:	Documents
Upload:	hadung
View:	228 times
Download:	1 times

The design of TOU tariffs for residential customers - AMEU design of TOU... · The design of TOU...

Documents